Reliance, Niko shares fall on cut in gas reserve estimate

MUMBAI (Reuters) - Shares in India’s Reliance Industries Ltd RELI.NS fell as much as 3.2 percent on Thursday on renewed concerns about gas output after Canada’s Niko Resources Ltd NKO.TO slashed the reserve estimate at the KG D6 block, in which both hold stakes.

A woman walks past a poster of Reliance Industries installed outside the venue of the company's annual general meeting in Mumbai June 7, 2012. REUTERS/Vivek Prakash

Reliance has been under pressure from the government and regulators to raise output at the huge KG gas fields, off India’s east coast, where production has declined for more than a year, forcing rising Indian imports of expensive liquefied natural gas (LNG).

Niko shares fell 39 percent to an almost 12-year low of C$13.06 on Thursday morning on the Toronto Stock Exchange.

At least two brokerages cut their price targets on the stock.

The Canadian oil and gas producer late on Wednesday estimated that total proved plus probable reserves at the KG D6 block, as of March 31, had decreased to 1.93 trillion cubic feet.

The block had earlier been estimated to hold more than 9 trillion cubic feet (tcf) of gas.

Haywood Securities’s analyst Alan Knowles said the magnitude of the decline in the proved and probable reserves is far in excess of his expectations.

He cut his price target on the stock to C$40 from C$60.

Raymond James also cut its price target on the stock to C$30 from C$52.

A Reliance Industries spokesman was not immediately available for comment.

Last month, Reliance cut proven gas reserves at all its Indian blocks by a lower-than-expected 7 percent, but Wednesday’s sharp cut by Niko has revived worries over the growth outlook that last year resulted in its share price dropping by a third.

“The market was expecting Niko to cut reserves to around 5-5.5 tcf, so this number is well below that,” said a sector analyst at a Mumbai brokerage.

He said the estimate, if confirmed by the company, could result in Reliance’s valuation coming down by 80 to 90 rupees. Other analysts said both companies may be using differing data to estimate reserves.

Reliance shares closed down 2.5 percent at 718.70 rupees in Mumbai trade. The stock lost a third of its value in 2011.

Reliance earlier blamed a decline in pressure and water ingress for falling production at D6 and said it was working with partner BP to raise production. Both companies will submit a development plan for the block to the regulator by the year-end.

Gas output at Reliance’s D6 block, off India’s east coast, is projected to decline to 20 million standard cubic meters a day (mscmd) in 2014/15 from 28 mscmd in the current fiscal year.

Profits at the energy-based conglomerate have fallen for two straight quarters, and its shares now trade near a 3-year low.